1 European Union – Korea Free Trade Agreement Sustainability Impact Assessment: Phase One Public Presentation November 30,

2 Outline Overview of Phase I Economic Context Social Context Environmental Context Baseline and Impact Assessment Selection of Sectors Horizontal Negotiating Issues Liberalisation Scenarios Planning for Phase II

3 Economic Context: European Union EU is the largest Global trader especially services In recent years the EU had approximate overall balance of trade in goods and services with large surplus with NAFTA and large deficit with East Asia Challenges of adjustment of global imbalances Korea is the fourth largest trading partner outside Europe but accounts for less than 3 percent of EU 27 external trade Dynamic expansion of trade within the EU 27 with Enlargement

4 Economic Context: Korea Good economic growth since the financial crisis a decade ago Exports and imports have grown strongly Korean currency exchange rate has appreciated significantly Overall trade surplus has remained stable Deficit with oil exporters has increased

5 Economic Context: Bilateral Dimensions and Asymmetries EU is a more important trading partner for Korea than Korea is for the EU Bilateral Trade surplus has increased in Korea’s favour EU has a bilateral surplus in services Growth in Korean exports to, and investment in, NMS has been significant Trade between the EU and Korea has a significant intra-industry component EU is the largest foreign investor in Korea

6 Economic Context: Global and Regional Dimensions The role of global imbalances and longer term adjustment Emergence of regional trade and production networks in East and South East Asia Third country and multilateral effects are very important in assessing bilateral trade and investment flows

7 Social Context : Europe EU has considerable variation in income per capita among member states In a number of EU member states agriculture is still an important source of employment and income EU population is ageing and total labour force will start to shrink; key role of Lisbon agenda in raising labour force participation but economic growth will depend upon productivity growth

8 Social Context: Korea Korea has shifted from a rural agrarian society to an urban industrial society Korean society is rapidly ageing and faces challenges of demographic transition Korea has high levels of educational participation and attainment By Human Development Index Korea ranks closer to EU median than by per capita income

9 Social Context: Gender and Income Distribution Korea has low female participation in the labour force and relatively lower educational attainment for women Korea has a relatively low level of income inequality compared to other emerging markets Korea is close to the median of EU member states in income inequality measures

10 Environmental Context Korea has made significant progress in environmental protection and pollution control especially in the last decade since joining the OECD As a densely populated urbanised society Korea has further needs for environmental protection Korea depends heavily on imported energy and renewable energy could play a more active role Korea participates actively in multilateral environmental agreements

11 Baseline and Methodology Baseline is built upon the Economic Impacts study using a CGE GTAP modelling framework Strengths and Weaknesses Dynamic Modelling and Endogenous Technology Sector Selection and Methodology

12 Sector Selection Automobiles Agriculture Financial Services Environmental Goods and Services

13 Horizontal Issues Rules of origin Intellectual Property Rights TBT/SPS Services/Investment

14 Liberalisation Scenarios Scenario 1 Goods only FTA Scenario 2 Deep Goods and Services FTA

15 Next Steps Consultations Workshop in Korea December 14 Consultations in Europe Sector Studies